THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: Thanks very much, Ali, and to our viewers, you're in THE SITUATION ROOM, where new pictures and information from around the world are arriving all the time. Happening now, the United States and Germany standing together against Iran. It's 4:00 p.m. here in Washington, where President Bush is calling Iran's nuclear defiance a "grave threat." But how hard is he willing to push back?

Also this hour, our exclusive CNN interview with Laura Bush. Zain Verjee gets the first lady on the record about the 2008 race for the White House. Does she have a choice for someone to replace her husband?

And retail politics. They say you can't fight city hall, but you apparently can beat Wal-Mart.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

This hour, we're also following a developing story out of Florida where a SWAT team shot an eighth grader when he apparently raised a gun and threatened deputies. It's not clear what condition the boy is in right now. We're expecting lots of details at a news conference. That's coming up shortly. We'll bring it to you live once it begins.

We'll move on, though, to other important news we're following. President Bush says the world needs to send a common message that Iran's refusal to pull the plug on its nuclear program is unacceptable. He got backup in that effort today from Germany, despite some past and current differences with Berlin on other issues.

Our White House correspondent, Elaine Quijano, is joining us now with more on what happened today -- Elaine.

ELAINE QUIJANO, CNN WHITE HOUSE CORRESPONDENT: Hello to you, Wolf. And that backup came from Germany's new chancellor, Angela Merkel. This really an opportunity for both the United States and Germany to try to forge a new beginning of sorts.

Of course, the relationship between the two countries had been greatly strained because of the Iraq war. Specifically, Chancellor Merkel's predecessor, Gerhard Schroeder, had disagreed sharply with President Bush on Iraq. Today, however, these two current leaders emphasizing where they have common ground, namely on the issue that's been brewing for some time: Iran. Today President Bush and Angela Merkel said that -- Wolf, we'll toss it back to you.

BLITZER: I'm going to interrupt for a second. I want to go to this news conference in Longwood, Florida. The shooting of an eighth grader today by a SWAT team. Here's the sheriff.

SHERIFF DONALD ESLINGER, SEMINOLE CO., FLORIDA: ... directed the other student into a closet, actually then turned the lights off in that room. The student from the closet then ran. Security was notified as well as the school resource officer.

Once they arrived, the individual then left the classroom, ran about campus and then eventually ended up in building seven's restroom on the south side, a little alcove. And there's two restrooms, a male and female restroom, in that alcove.

Within 10 minutes of that call, there were over 40 law enforcement officers from the Seminole County Sheriff's Office, Castleberry Police Department, Longwood, as well Altamonte Spring Police Department responded. SWAT was called.

The negotiator, as you know, was attempting to get dialogue with the individual in the bathroom in this alcove area. He did not respond. They pleaded with him to drop what they -- what was a nine millimeter -- it looked like a nine millimeter Beretta handgun.

He refused to even comment. All he said was his first name. He did not drop the firearm, and at one point, he crossed over into the alcove. Our SWAT operator, Lieutenant Michael Whipert (ph), had positioned himself between the suspect, the gunman, and two occupied classrooms directly behind him.

The individual then raised the firearm in a tactical position and pointed it at Lieutenant Whipert, and Lieutenant Whipert decided to use deadly force. Rescue was called and you know the rest.

Once FDLE responded on scene -- it's our policy to call FDLE whenever there is a deputy involved shooting. And once crime scene investigators responded to the scene on the scene, once they began their investigation, they realized that nine millimeter Beretta was in fact actually an Airsoft pellet gun that was modified to look like a real gun.

FDLE was gracious enough to allow us to show you the actual firearm, the pellet gun, as well as a comparable firearm. Investigator Agent Dunaway (ph).

UNIDENTIFIED MALE: This is the actual firearm that was held by the subject inside of the one that I'm holding during the incident. And as you can see, it looks almost identical to the one that Zack Dolley (ph) is holding, which is the actual real nine millimeter handgun.

UNIDENTIFIED MALE: Now, a pellet gun, that is always pink or red. That has been modified and painted black.

UNIDENTIFIED MALE: The very end of it?

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: OK?

ESLINGER: Dr. Vogel would like to say a few words.

JOHN VOGEL, SUPERINTENDENT, SEMINOLE SCHOOL: Thank you very much, Don. Today the preparation and training that our teachers and staff go through really paid off in preserving the safety of our more than 1,100 students here at Milwee Middle School.

The teacher responded as soon as she learned of the incident by calling security, and the school resource officer responded. The school went into immediate code red, which was a lockdown. The student, as he was walking around, was isolated into a particular area and students were moved away to ensure their safety.

I cannot thank the sheriff's department, their SWAT Team, Castleberry and Longwood law enforcement for the way they responded to this tragedy today. And I want to again emphasize the cooperative relationship we have. The sheriff's department does training on our school sites.

After the incident, we notified parents to the best extent we did. School was closed. We had buses pick up children. Children that were not able to get home for whatever reason, we had social workers here with them.

And, also, our crisis intervention team arrived on the scene, talked with faculty members. And that crisis intervention team will be back on-site Tuesday morning to talk with individual students. Thank you -- Joyce (ph).

UNIDENTIFIED FEMALE: As Sheriff Eslinger told you, once we were notified, as per protocol with the sheriff's department, FDLE responded with three critical incident teams to work this investigation.

The reason for the three critical incident teams was the sheer numbers of interviews that had to be conducted and the amount of evidence that we have taken into our possession. We have so far conducted 25 critical interviews and we anticipate doing another 10 to 12.

Our crime scene investigation portion of the case has been completed and that evidence will now go back to the laboratory for further processing. We anticipate a 24 hour briefing with the sheriff and the school board sometime on Tuesday. So we'll have some more additional information at that time. Sheriff.

ESLINGER: Any questions?

QUESTION: Sheriff? ESLINGER: Yes.

QUESTION: Did the SWAT Team actually go inside the bathroom with this young man, or did this all play out outside in this alcove?

ESLINGER: It's hard to describe, but it's an alcove and then inside this little area that's an open area that has no doors, inside that are two restrooms. And inside that restroom is where he was.

He opened the door. The door was open. I didn't exactly see that. And then he came outside and then in tactical position raised the firearm in a threatening manner and pointed it at Whipert and Whipert made that decision.

QUESTION: Is there any sense as to why ...

BLITZER: All right. We're going to break away from this news conference. The sheriff down in Longwood, Florida, Sheriff Don Eslinger, explaining what happened. A tragic incident.

An eighth grader, a 15-year-old boy, brought in this gun. Authorities thought it was a Beretta. It turned out to be a pellet gun, but it looked very similar. Made some suicidal, threatening gestures. The police shot him. A SWAT Team was on the scene.

We're still waiting for word on the condition of the boy who was rushed to the hospital. No word yet on his condition. If we get that information we'll bring it to you. We'll continue to monitor this news conference in Florida. What a tragic story down there. We had interrupted Elaine Quijano.

President of the United States met with the new German chancellor, Angela Merkel, today at the White House. Atop the agenda, the whole Iranian nuclear program. In the course of his remarks, the president said this.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Iran armed with a nuclear weapon poses a grave threat to the security of the world. And countries such as ours have an obligation to step up, working together, sending a common message to the Iranians that it's their behavior, trying to clandestinely develop a nuclear weapon or using the guise of the civilian nuclear weapon program to get the know-how to develop a nuclear weapon is unacceptable.

(END VIDEO CLIP)

BLITZER: In our next hour right here in THE SITUATION ROOM we are going to take a closer look at the Iranians, their nuclear program and how close they actually might be to developing a nuclear weapon.

Our David Ensor has new information on that.

Meaning we'll move on to some other news now. Presidential politics in 2008, specifically an endorsement of sorts for the Secretary of State Condoleezza Rice. It came during our Zain Verjee's exclusive interview with the first lady, Laura Bush, over at the White House.

Zain is here in Washington. She is joining us now live with more -- Zain.

ZAIN VERJEE, CNN ANCHOR: Wolf, Laura Bush is leading a delegation to Liberia for the inauguration of Ellen Johnson-Sirleaf. She is Liberia's new president. Johnson-Sirleaf is also Africa's first elected female president. She is a Harvard-educated economist, 67 years old and has got six grandchildren.

I asked Mrs. Bush whether it was time America had a female commander in chief.

(BEGIN VIDEO CLIP)

VERJEE: As an American woman, seeing that Africa has its first elected president who is a woman what does that make you think? Do you think it's time that America...

LAURA BUSH, FIRST LADY OF THE UNITED STATES: I think it will happen for sure. I think it will happen probably in the next few terms of presidency in the United States.

VERJEE: Who would you like to see?

BUSH: Well, of course, a Republican woman. I mean, Dr. Rice.

VERJEE: Yes.

BUSH: She says she definitely is not running, but...

VERJEE: But you would like to see her run?

BUSH: Sure, I'd love to see her run. She's terrific.

VERJEE: Anyone else?

(END VIDEO CLIP)

VERJEE: And, Wolf, the secretary of state, Condoleezza Rice, will be part of the official delegation going to Liberia.

On a personal note, Mrs. Bush also said that her 24-year-old daughter, Barbara, will be accompanying her. Her first official trip as part of this delegation. And she's pretty excited about that, Wolf.

BLITZER: When you asked her, Zain, anybody else, did she throw out any other names?

VERJEE: No. She didn't. She just focused on Condoleezza Rice and also mentioned that Dr. Rice would be traveling with her.

BLITZER: All right. Zain, thank you very much. And this note to our viewers. Zain is going to be back with us in a few minutes with more of her exclusive interview with Laura Bush. We'll find out what Mrs. Bush had to say about the tears shed by Samuel Alito's wife at his confirmation hearings earlier this week for the U.S. Supreme Court.

Laura Bush may like the idea of a Rice for president campaign, but would the secretary of state be a good presidential candidate?

Let's bring in our senior political correspondent Candy Crowley.

How viable of a contender, Candy, do you think she might be?

CANDY CROWLEY, CNN CORRESPONDENT: Wolf, setting aside the fact that she says she doesn't want to do it. I've talked to some Democrats and some Republicans today just about this thing. You know, what would you think about this?

And on both sides of the aisle they said, look, she has name recognition. She could raise millions of dollars. She has enough government experience to make her experienced, but not so much that she looks like yesterday's news.

And, to state the obvious, she is black. She is a female for the Republican party. That would mean perhaps that they would get another look from some Democrats.

One Democrat I talked to said, look, she could win. She could win. The question is, of course, whether or not she has fire in the belly. And we'd have to say at this point no because she has said repeatedly she doesn't want to do it.

BLITZER:: What about the whole notion of Mrs. Bush actually suggesting this today or at least acknowledging it in the course of her interview with Zain?

CROWLEY: Well, let's give Mrs. Bush a plus for her political skills. Never hurts to mention that your husband has a very smart, very highly regarded secretary of state who is female and who is African-American.

So that's -- and then, too, when you think about Republican women of who might run, you think of Condoleezza Rice. And on the Democratic side obviously you think of Hillary Clinton. So those are the two most prominent names. It may be natural, but it was also very good politics.

BLITZER:: Candy Crowley reporting for us.

Thanks, Candy very much.

Jack Cafferty is in New York. He is standing by. He's got not only his question.

Quick question to you. You know there have been women who have led Germany. Angela Merkel is at the White House today. She is the new German chancellor. Margaret Thatcher in Britain, Golda Meir in Israel, Indira Gandhi -- now there is a democratically elected woman, who is president of Liberia.

When is that going to happen here, Jack?

JACK CAFFERTY, CNN ANCHOR: Well, it should have happened probably yesterday. I mean, take a look at how the men have screwed things up. You know, they've had power in this country since it was founded.

And I'm not so sure if you look around right now you couldn't make a very strong argument that women, particularly in some of the areas that relate to foreign relations and foreign policy, couldn't have done at least as good a job, if not a much better job.

And, you know, I'm -- I've been married twice and have four daughters. So I'm well familiar with the way at least six of the women on this planet think. And I think they'd do a terrific job, and I hope it happens soon. I don't think the men have done such a great job with the power they've been given.

BLITZER: I'm with you.

CAFFERTY: You agree with that?

BLITZER: Yes, I agree.

CAFFERTY: Your wife and my wife would not expect us to say anything different.

BLITZER: Go ahead with your question of the hour.

CAFFERTY: A fact of life, Wolf, and America has to learn how to deal with it. That's outsourcing. Those words from Senator Max Baucus of Montana. He said then while visiting in India.

Senator Baucus also called on India to continue to open its economy to competition from U.S. businesses. He said a majority of his fellow Senate Democrats agree with him.

Critics of outsourcing, of course, say it puts skilled people out of work here just so that American companies can save money. Supporters say it actually creates jobs because it helps companies grow faster.

Here's the question this hour. What's the best way for Americans to adapt to outsourcing? You can e-mail us at caffertyfile@CNN or go to CNN.com/caffertyfile. And if you have trouble with the question you can call Lou Dobbs. He'll have some suggested answers to that question. I'm sure.

BLITZER: I'm sure he's anxious to take all those calls.

Thanks, Jack, very much.

I want to update our viewers. At the top of this hour we had that live news conference from down in Longwood, Florida. This eighth grader, 15-year-old boy, was shot by a SWAT team after he raised what seemed to be a Beretta. It turned out to be a pellet gun.

Authorities now say his condition at the hospital, he's on advanced life support. So we'll continue to monitor that story for you, our viewers.

Coming up here in THE SITUATION ROOM, a wife's tears. Can Laura Bush relate to Mrs. Alito's crying at the hearing earlier this week for the confirmation process? Zain Verjee will join us with more of her exclusive interview with the first lady.

Also ahead, a new contender in the race to replace Tom DeLay as the House majority leader. It's turning into a contest to separate Republicans from scandal. We'll update you.

And bird flu fears keep growing as more people get the virus and more people die in Europe this hour. We'll get an update on prevention efforts right here at home from the Health and Human Services Secretary Mike Leavitt. Stay with us.

REP. JOHN BOEHNER (R), OHIO: But what we need to do is to renew our commitment to live by those rules that we've all agreed to do.

HENRY: The top two contenders, Roy Blunt and John Boehner, both claim to be close to reaching the votes to win the job, but now a third candidate John Shadegg has entered the fray, charging the others are too cozy with lobbyists.

REP. JOHN SHADEGG (R), ARIZONA: While both of the two candidates already in are good people, neither one of them will bring real reform.

HENRY: Blunt got into hot water three years ago when he tried but failed to slip a tobacco provision into the bill creating the Department of Homeland Security.

The provision would have benefited a tobacco lobbyist, who happened to be his girlfriend. The couple has since married, and Blunt stresses his wife, now at Kraft Foods, only lobbies the Senate, not the House.

BLUNT: Well, I think what we really need to have is the same kind of safeguards for the whole system that I believe we put in my office.

HENRY: Boehner raised eyebrows several years ago when he used the House floor to distribute campaign checks from tobacco lobbyists. BOEHNER: Listen, I'm human just like anybody else. I've made my fair share of mistakes, but I worked to correct those rules. There were no rules that prohibited that at the time.

(END VIDEOTAPE)

HENRY: Now there's a race among Democratic and Republican leaders to craft who can come up with the toughest lobbying reform plan, including various plans floating around to ban privately funded travel for lawmakers.

But, you know what, right now there is a bipartisan group of lawmakers at one of these conferences in sunny Hawaii. So they're trying to get it in while they can -- Wolf.

BLITZER: All right, Ed.

Switching gears, Samuel Alito, the confirmation hearings, for the U.S. Supreme Court. They have wrapped up all the hearings. When is the vote in the committee expected and what's it likely to be?

HENRY: Well, another boost today because a key moderate Republican, the chairman Arlen Specter, said he'll support Judge Alito. He's still pushing for a committee vote this coming Tuesday. Democrats leaving open the option as they can under the rules to delay that by a week.

I can tell you, at this hour there are talks going on. What they're trying to compromise is a committee vote next Thursday. That could happen. Then it would head to the Senate floor. Bottom line, they are going to get this done by the end of the month.

BLITZER:: So no filibuster?

HENRY: It's not definite, but it is looking like it is going to be extremely hard for the Democrats to mount one. So it's highly unlikely, and it's very likely that he'll actually be confirmed--Wolf.

Many Americans who watched the Alito hearings on TV felt for the nominee's wife, Martha Ann, when she broke down in tears after a long day of watching her husband grilled by senators. The First Lady Laura Bush probably understood how Mrs. Alito felt more than most.

Zain Verjee is back once again with more of her exclusive interview with Mrs. Bush.

The subject, you raised this subject, Zain.

VERJEE: Yes, Wolf, President Bush constantly criticized by his political opponents, as you know. And how does Laura Bush handle it, though, when her husband is under fire? I asked her that, as well as about how she felt seeing Mrs. Alito cry.

(BEGIN VIDEO CLIP)

VERJEE: There was a very dramatic moment a couple of days ago in the Supreme Court confirmation hearings where Mrs. Alito just sort of broke down, cried and left the room on hearing her husband being criticized.

BUSH: Do I ever feel like doing that?

VERJEE: Yes. I mean...

BUSH: Every once in a while.

VERJEE: Have you -- do you ever feel like crying when you hear the president being criticized, called a liar, being abused?

BUSH: Well, no, not really. But I will say I called Martha Alito yesterday to tell her to hang in there. And I do think it's really important in the United States for people like Judge Alito to be treated with respect.

I think it's very important for the Senate to have a very civil and respectful hearing for anyone that has been nominated for the Supreme Court or for the other jobs that require Senate confirmation.

But, on the other hand, my family has been in politics for a long time. And I think you do develop a thick skin. Does it ever not hurt? You know, not really.

VERJEE: So you don't take it personally?

BUSH: Well, you try not to take it personally. But that's what I want to say is that I think personal attacks are what people don't like and what are really unwarranted.

(END VIDEO CLIP)

VERJEE: And, Wolf, Mrs. Bush also spoke to me about what it was like for her to console families of people that have died in Iraq. And we'll talk to her a little bit more about that later.

BLITZER: Zain, thank you very much.

And to our viewers, we're going to have more of Zain's exclusive interview with the first lady. That's coming up next hour. And this important note. The entire interview, the entire conversation, with Laura Bush will air 7:00 p.m. Eastern right here in THE SITUATION ROOM. You'll want to watch that tonight.

Coming up next, is the U.S. prepared for a possible bird flu outbreak? My interview with the Health and Human Services Secretary Mike Leavitt. That's coming up.

Plus, Maryland forces Wal-Mart to spend more on its employees' health care. Will other states follow suit? And what does that mean for you? We're going to find out. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The United States is sending a team of experts to Turkey to help deal with its outbreak of bird flu. The number of people infected with the virus in Turkey is now up to 18. And three of them have already died.

The World Health Organization is asking the Turkish government for permission to send teams into infected villages to take blood samples, swab throats and interview families.

Let's get an important check now on what's going on as far as the Bush administration's response to the bird flu threat. We're joined by the Health and Human Services Secretary Mike Leavitt. He's joining us from the CNN center in Atlanta.

Mr. Secretary, why are these people dying in Turkey?

MICHAEL LEAVITT, HHS SECRETARY: We are seeing a continuation of what could be expected as the H5N1 virus is carried by wild birds from southeast Asia into eastern Europe. And obviously it will then travel on to deeper Europe. It's a natural consequence of the virus traveling and the maturity of the disease.

BLITZER: There's suggestions from authorities in Turkey, World Health Organization authorities and others that the virus is mutating, that there's a different version in Turkey, for example, than in southeast Asia. Why is that significant?

LEAVITT: It's not something that we should be surprised by. Viruses are constantly mutating, constantly finding ways to adapt. And it will continue happen. We are monitoring very closely through the teams of the World Health Organizations and our own at the Centers for Disease Control the progress of the virus.

There is nothing at this point that would cause us to believe that the virus has taken on properties that it would allow it to be transmitted between people.

BLITZER: So far, all the evidence suggests the virus is only transmitted from birds to people. There's no evidence yet it's transmitted human to human. If it were, that would be so much more dangerous.

We do have this quote, though, from one World Health Organization official: "When you have a mother and a child and both get sick, you don't know if they both were exposed to the chickens or if the mother got sick because she was caring for the child. It leaves room for some question marks." That's from the head of the Communicable Diseases and Response Division of the World Health Organization.

LEAVITT: There have been other cases, very limited cases, where we have some suspicion that there may have been a human-to-human transmission. But it is not happening in any kind of an efficient way. Very close contact, almost always between a parent and a child who is being treated for the illness. We do not believe at this point that we're seeing repeated transmission between people. That would, in fact, be a substantial event, and one that would trigger a great deal of activity on our part that has not occurred.

BLITZER: The other quote I want to put up on the screen, another World Health Organization official said this: "As the new cases of human infection with the H5N1 virus in Turkey show, the situation is worsening with each passing month, and the threat of an influenza pandemic is continuing to grow every day." Would you agree with that assessment?

LEAVITT: The scientists tell me that viruses are, by their nature, aggressors, and they are constantly mutating, migrating, finding ways to adapt. And the more people who are infected, the more opportunities that a virus has in a host to adapt the consequence cascade in their probability.

So that's the reason we're watching this so closely. Now, there's no evidence at this point that it has mutated to the point that it has achieved human-to-human transmission. But we're watching it closely. We have teams in Turkey. We have teams in the other theaters where it's manifest itself.

We can expect, I believe, for the virus to manifest in people in other places because when it infects the birds and people handle the birds, the same thing will occur.

BLITZER: You're the point man for the U.S. government on bird flu and other diseases. And you have to prepare for the worst case scenario. Worst case scenario, God forbid, how many Americans would die?

LEAVITT: Well, we've studied previous pandemics. We've studied them closely. And there are some things we have learned. One is that about 30 percent of the population will ultimately be sick. About half of those would require some kind of medical attention.

We're beginning to plan for the worst case in the circumstance that that occurred. In past pandemics -- in 1918, about two percent of the population were affected in the way that it took their life. We are working very hard to prevent that. We're doing all we can to assure that if it were to occur, we'd be ready.

BLITZER: So what would be a realistic -- just to give our viewers some perspective, how many people do we fear might die if this pandemic were to develop? And of course, we hope it won't.

LEAVITT: If we had a pandemic that was similar to the one that happened in the United States in 1918, roughly 90 million people would be ill. About 45 million people would require some kind of medical attention. And roughly two million people would perish. That is not something we expect will happen, but it could. And we need to be ready if it were to occur.

BLITZER: Two million. That sounds enormous, and it is enormous. LEAVITT: Pandemics happen. They have happened in the past, they will likely happen in the future. We need to prepare because they are world-changing events when they occur. They not only take the lives of millions and make the masses sick, they also change the economy. They have impacts on the culture, on the politics. Back through history, they have shaped the world. The history of pandemics is not so much a history of public health. It's a history of humanity.

BLITZER: I know you've got a great team with Julie Gerberding at the CDC, and Dr. Anthony Fauci, and a lot of other excellent people. Let's hope that we never get to that point. Thanks so much, Mr. Secretary.

LEAVITT: Thank you.

BLITZER: Every time you turn around these days it seems as though Wal-Mart is making some kind of news, and not necessarily in a good way for the discount giant. It's happening once again this week, and it gives a whole new meaning to the term retail politics. Our senior political analyst Bill Schneider is joining us now with more -- Bill.

BILL SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, beating up on the big boys is an old political tradition. This week the Maryland legislature took on the biggest one of all and won the "Political Play of the Week."

(BEGIN VIDEOTAPE)

SCHNEIDER: Showdown in Annapolis. On one side, Wal-Mart, the nation's largest retailer, and Republican Governor Bob Ehrlich, who last year vetoed a bill to require Maryland's largest companies to pay at least eight percent of their payroll for employee healthcare benefits or else make a contribution to the state's insurance fund. Only one large company does not already meet that spending requirement: Wal-Mart.

The other side, the strongly Democratic Maryland legislature, supported by liberals and labor.

SEN. EDWARD KENNEDY (D), MASSACHUSETTS: It's time for Wal-Mart to provide affordable healthcare instead of dumping its workers on Medicaid.

SCHNEIDER: Which is exactly what critics claim Wal-Mart does. Like this former employee interviewed in an anti-Wal-Mart documentary.

UNIDENTIFIED MALE: I talked to the regional personnel manager about who is going to take care of the Wal-Mart associates and their healthcare needs. And he said, "Let the state do it."

SCHNEIDER: The Maryland legislature's response? Not this state.

ANTHONY BROWN (D), MARYLAND STATE HOUSE: This bill is not only about quality healthcare, it's about corporate responsibility. SCHNEIDER: After weeks of intense lobbying and advertising, this week the Maryland legislature mustered enough votes to override Governor Ehrlich's veto. Talk about taking on the big boys. Wal- Mart's annual net sales for 2004 totaled over $285 billion. Maryland's gross state product for 2004? 228 billion. Maybe Wal-Mart will just buy Maryland.

This vote was never about healthcare, Wal-Mart says in a press statement. This was about partisan politics in the Maryland gubernatorial race. If that's the case, Governor Ehrlich is in trouble because his Democratic opponents just scored the "Political Play of the Week."

(END VIDEOTAPE)

SCHNEIDER: Maryland's action this week is likely to set an example for other states to follow. That's why Wal-Mart fought it so fiercely -- Wolf.

BLITZER: Bill Schneider reporting for us. Thank you, Bill, very much.

And anti-Wal-Mart groups are claiming victory after the Maryland health care vote. But the war of words online shows no sign of abating. Let's bring in our Internet reporter, Abbi Tatton. She has the story -- Abbi.

ABBI TATTON, CNN INTERNET REPORTER: Wolf, Wal-Mart itself very quick to respond online. You're looking at the video here of a store manager in Maryland. This is Brad Wilson (ph), who's on the site, describing just how wonderful his healthcare is and has been for him and his wife. All of this at the public relations site Walmartfacts.com.

This was started by the corporation last year to mount an aggressive campaign against those groups, the opponents of Wal-Mart, who really have good campaigns going, aggressive campaigns going online, like wake wakeupwalmart.com.

They're stepping up action to take on this new legislation and take it nationwide, sending out an email here from walmartwatch.com targeting other states considering similar legislation -- Wolf.

BLITZER: Abbi Tatton, thank you very much.

Up next here in THE SITUATION ROOM, a stubborn new threat in a section of New Orleans hardest hit by Hurricane Katrina. That story and some of the other headlines when we come back.

And the Condi Rice for president speculation continues. Are Democrats running scared? James Carville, he's standing by to weigh in in our "Strategy Session.". You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Zain's here in Washington. Let's go back to Zain just for a quick check of some other stories making news -- Zain.

VERJEE: Wolf, in Iraq, two U.S. pilots are dead after their helicopter went down in Mosul. Though some reports suggest that the aircraft was downed by enemy fire, that's not actually been confirmed. And officials are investigating. The helicopter had been conducting a combat air patrol in tandem with another aircraft. The number of U.S. troops fatalities in Iraq now stands at 2,214.

The longer it takes for Israeli Prime Minister Ariel Sharon to awake from a coma, the more concern there is about long-term brain damage. Sharon's been in a coma for nine days after a significant stroke. Some doctors suggest that with each day Sharon is comatose, the chances of recovery decrease. Yet other medical officials say it's just too early to predict Sharon's long-term prospects.

And in New Orleans, firefighters have decided to let this massive 100-foot high pile of hurricane debris burn itself out. The blaze is located in the city's devastated lower Ninth Ward. The huge pile includes everything from furniture to appliances. It's not clear what started the fire last night. Officials, though, are testing the air quality to determine if it's hazardous --Wolf?

BLITZER: Thank you very much. Remember, more of Zain's interview with the First Lady Laura Bush, that's coming up.

To memorialize that devastating 2005 hurricane season and its impact on the still-ravaged Gulf Coast, the Smithsonian Museum is partnering with two major universities to launch a digital memory bank. Let's go to our Jacki Schechner, our Internet reporter. She's got more.

JACKI SCHECHNER, CNN INTERNET REPORTER: Wolf, these are the same people that brought the 9/11 digital archive, which was the first digital acquisition by the Library of Congress ever. Here's the idea. There are memories here, and they want to preserve these memories online.

They're asking people to send in their photographs, their audio casts, your stories, your blog entries, anything that you want memorialized online. For example, those rubbish piles that are burning or things like this, desk chairs from schools in the areas. There are memories in here.

And what they're doing is putting this together on a Google map. The idea being that where you are on the area affects what your experience was at the time. These are historians. They have about 600 entries so far. They're asking for people to send them in. This is the first of their media push. They really want people to preserve this stuff forever -- Wolf.

BLITZER: All right, Jacki, thanks very much.

Coming up, an intra-party fight on Capitol Hill. Can the Republicans patch things up and clean house in the House?

Plus, how safe are your cell phone records? You may be astounded when you find out. Stay with us. We'll have that story in the next hour, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Today in our "Strategy Session.", what do two of the top men in the business think about the possibility of a Condoleezza Rice presidential bid? And one campaign already underway to succeed Congressman Tom DeLay as the House majority leader. Will the GOP be able to prove it deserves to stay in power in the elections later this year?

Joining us, our CNN political analyst and Democratic strategist James Carville, and Republican strategist Ed Rogers. How worried are you about Condoleezza Rice potentially running for president?

JAMES CARVILLE, DEMOCRATIC STRATEGIST: Well, you know, look, this has been the week of the Republican women. You've had Mrs. Bush suggesting Condoleezza Rice, you had Mrs. Alito weeping on Capitol Hill. This has been a kind of week.

ED ROGERS, REPUBLICAN STRATEGIST: Been effective.

CARVILLE: Yes. And the -- you know, it's a long way away. I mean, she was kind of the architect of the Iraq policy, which I doubt is going to get you very many votes in 2008. But she's got a great story. She's attractive and articulate, and a lot of people think she should run. My guess is in the end that Condoleezza Rice does not run for president.

BLITZER: I don't know if you'd call her the architect. I think it was Cheney, it was Bush, it was Rumsfeld.

(CROSSTALK)

ROGERS: She may be due some of the credit before it's all over with.

CARVILLE: She put in charge of it.

(CROSSTALK)

CARVILLE: I don't know what credit anybody would get for this plan.

ROGERS: Stay tuned.

BLITZER: Well, is this at all credible? Let's get back to Condoleezza Rice even thinking about it. She says not interested.

ROGERS: Well, she says no. She's an honest soul, and so if you take her at her word, she's not going to run. Having said that, she has a unique combination in America of substance and celebrity that would make her a very compelling candidate.

Republicans, we are hierarchical. We nominate front runners. It's hard to see where if she really ran and really tried, she wouldn't be the front-runner, but she could very well be our nominee, regardless. From now on, she is a candidate for the ticket to be a V.P. nominee as long as she's alive.

BLITZER: Did you think -- were you surprised by Mrs. Bush's comments today?

ROGERS: Well, I wasn't surprised. I saw them in context. And what she said, "Condi has said she's not going to run, but she would be very effective. And she did so in response to a question. But there is -- because she's so compelling as a candidate, there's always going to be speculation about Condi Rice.

BLITZER: People are salivating at the though of a Condi Rice versus Hillary Clinton campaign.

ROGERS: I am.

CARVILLE: You know, in the end, I just really do doubt that she'll run. I understand with Mrs. Bush, they're probably good friends. Another woman in the administration. But I really don't see this thing happening. But, hey, you know what, stand by. It would be interesting. I think Ed makes a good point. She's always going to be mentioned as a possible person on the ticket for the foreseeable future on the Republican side.

BLITZER: I think both of you agree, it's about time a woman became president of the United States.

ROGERS: As long as it's a Republican.

BLITZER: All right, let's talk about the election that's going on for the House majority leader. Another candidate came in, Congressman John Shadegg. He's quoted as saying this: "I believe that we need a clean break from the scandals of the recent past. I hope every member of the Republican conference will join with me in the coming days to craft an agenda of reforms that will fully regain the confidence of the American people."

What's your assessment right now on where this race for the House majority leader, the succession to Tom DeLay, stands?

ROGERS: Well, since it's been a week and neither one of the two announced candidate, Blunt or Boehner, really were able to wrap things up, it invited Shadegg into the race. Shadegg is a good man. I like the idea of him getting into the race. He's still -- you've got to think, he's still in third place.

But this is sort of an intra-fraternity battle. The outside opinions and the outside opining really don't matter. This is going to be decided by the House Republican Caucus.

BLITZER: What do you think?

CARVILLE: Well, hey, you're right. It will be decided by the House Republican Caucus. But what really matters is what people think out there because the House Republican Caucus has got to go face these voters. They're obviously scared to death about this things. And these leadership races on either party can be very, very, very fractious. And it can cause some really hurt feelings that take a long time to get over. I know on our side, you know, you still hear people talk about leadership races.

I think this one is going to be particularly intense and particularly important, and it's time to stand by and see what happens. But these guys, I'll guarantee you, they're working the phones like crazy, and they're spinning like crazy. But I think that -- I disagree with Ed. I think the Republican Caucus is really sensitive to what opinion is out there.

BLITZER: Very quickly just on Alito, yesterday, Paul Begala, your pal, your partner, on this program thought it was over. He's going to confirmed. Do you agree?

Coming up next, does country music star Tim McGraw have political ambitions? Find out what he's saying about his future.

And Zain Verjee's exclusive interview with Laura Bush. How does the first lady handle the stress of trying to comfort the families of fallen troops in Iraq? More of the interview. That's coming up.

(COMMERCIAL BREAK)

BLITZER: On our political radar this Friday, the Attorney General Alberto Gonzales says he'll testify publicly about the Bush administration's domestic spying program. The Senate Judiciary Committee is moving ahead with its investigation, and a hearing is expected to begin next month.

Gonzales says he reached an agreement with the committee chairman, Arlen Specter, to answer questions about whether it's legal for Mr. Bush to authorize wiretaps without warrants.

As Americans prepare to honor Martin Luther King Kr. on Monday, some Texans are at odds over a march to honor the slain civil rights leader. Two fighter jets are scheduled to fly over the event in San Antonio. Critics say the flyover represents support for the Iraq war and goes against Dr. King's promotion of peace. Organizers say it's meant to be a patriotic honor. And being a country music star and husband of fellow singer Faith Hill may not be enough for Tim McGraw. McGraw reportedly tells "Esquire" magazine he'd love to run for governor of Tennessee some day. The Democrat says he thinks there'd be a lot of opportunities to change things as governor. And he thinks it's something he'd actually be good at.

Still to come here in THE SITUATION ROOM, a senator's controversial take on outsourcing. "Get used to it," he says. Is that outrageous, or is he being realistic?

And talk about outrageous, could someone be finding out right now who you've been calling on your cell phone? A shocking story we've been investigating, the online service and the legal and privacy issues it raises. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back. Jack Cafferty's getting ready. We're going to go to "The Cafferty File" momentarily. I just want to remind our viewers, our Zain Verjee had an exclusive interview earlier today with the first lady Laura Bush. More of that interview coming up. More coming up at the top of the next hour. And then all of the interview right here in THE SITUATION ROOM. That's coming up 7:00 p.m. Eastern.

Let's go to New York. Jack Cafferty is standing by with "The Cafferty File." Hi, Jack.

CAFFERTY: Thanks, Wolf. Senator Max Baucus, a Democrat from Montana, says outsourcing's a fact of life and America has to learn how to deal with it. His office called us to clarify something we reported earlier. They say, quote, "I wanted to clarify on his behalf. He did not express support for outsourcing, nor did he characterize Democrats' position in any way other than to say his colleagues support India as the world's largest democracy."

I love when politicians try to clarify things. Here's the question. What's the best way for Americans to adapt to outsourcing?

Michael in Dallas writes, "Americans need to learn to use their brains and let the rest of the world use their brawn."

Richard writes from Larchmont, New York, "When Election Day comes around in November, the entire House of Representatives and one third of the Senate should be voted out of office and sent to India and Southeast Asia. See how they react when the common people decide to run the country as it says in the Constitution."

Charles writes, "Outsourcing will eventually burn itself out as salary levels in the outsourcing countries approach the same rates as here in America. When this happens, corporations will see it's no longer a bargain, as it once was a few years ago. But by that time, they'll be locked into the overseas markets"

Troy in Marian, Indian, writes, "Promote jobs in the service industry. As long as companies can produce goods elsewhere, the jobs will continue to go. Fortunately, you can't get Starbucks coffee from India every morning. From food to construction, nothing that requires human bodies onsite can be replaced."

And Bob in Texas writes, "Jack, your subject today is known in the legal business as begging the question. When did we agree we had to cope with outsourcing?" Wolf.

BLITZER: Jack Cafferty in New York. We're going to get back to you soon. Thanks very much.

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